What the papers say - 19th and 20th June 2010

Published 22/06/2010

Interest only mortgages are not quite extinct but they are certainly becoming harder to find, as discussed in the Times this weekend. Scottish Widows has become the latest lender to restrict interest only lending to loans below £500,000, bringing it in line with other parts of the Lloyds Banking Group. Lenders including HSBC and Santander now limit the LTV to 75%, while others have tightened up on their list of suitable repayment vehicles. Experts warned borrowers that they should be prepared for greater scrutiny in regards to their means of repaying the debt, and suggested that anyone looking to clear their mortgage using future inheritance or bonuses should stay with their existing lender, or use their current savings to reduce the mortgage and switch to repayment as soon as possible. There was also news this week that the financial services industry itself would be changing, following the Chancellor’s announcement last week that the FSA is to be abolished. The new Consumer Protection and Market Authority (CPMA) will now take responsibility for the way financial products are sold and, as reported in the Guardian and the Independent on Sunday, there are rumours of a cap on lending and restrictions on LTV ratios. Experts felt that this move could be disastrous for First Time Buyers and the housing market in general, and highlighted the importance of finding the balance between ensuring there is no repeat of the crisis while not choking the market. The FT and Sunday Times both looked at the age old subject of fixed rates versus trackers. Figures suggest that if base rate remains at 0.50% until next year then borrowers may be better off with a tracker rate, however rates are predicted to rise at some stage so the advice as always is to look at one’s personal circumstances rather than trying to predict changes in inflation.

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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Representative example A mortgage of £188,578 payable over 22 years, initially on a fixed rate until 31/12/23 at 2.19% and then on a variable rate of 4.74% for the remaining 17 years would require 62 payments of £900.79 and 202 payments of £1,094.12. The total amount payable would be £276,994 made up of the loan amount plus interest (£88,283) and fees (£133). The overall cost for comparison is 3.7% APRC representative.

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